As a Canadian, buying in the United States; you have certain expectations of service and procedures surrounding the borrowing transaction. Understand one detail up-front: the US arm of a Canadian bank, is still a U.S. bank! My clients have often come to me; -scratching their heads and expressing their disappointment with the poor caliber of service they receive from their Canadian Bank’s U.S. counterpart. Not only do I understand; I’ve experienced the Service quality of my Canadian counter-parts as a former Loan Officer for the US unit of RBC. As an American consumer I’m envious!
Thus, if you are thinking about going to the U.S. arm of your Canadian bank; I’d suggest you steel your-self. How could it be that bad, you might ask? Well, start with the fact that U.S. banks are subject to greater capital retention regulations since the market collapse of 2008. Simply put, the banks are disinclined to lend to anyone! For U.S. citizens, U.S. businesses, and foreign nationals especially: they don’t want to lend, they want to conserve their capital as the government is requiring them to do. So understanding that you face an uphill challenge from inception is recommended!
- Pricing of Mortgage Rates: has also become very different in the US. For example: a few months ago, a client from Manitoba contacted me saying that ‘Over the phone’ he was quoted a 2nd home purchase loan in Florida at 4.75% with 10% down by the U.S. arm of T.D. Some weeks passed and I received a follow-up message from the same Client, now exasperated! “They’ve (TD) changed my interest rate and tripled my down payment requirements!”
- The interest rate my client finally balked at was 6.675% and the down payment had indeed been raised to 35%. The reasons given were that: 1. my client was buying in Florida; 2. in a ‘declining value county’; 3. a condominium; 4. with a high concentration of Investor Owners; 5. and now, Owners in default or an excess of condos in the complex were now owned by banks, and finally 6. my client was self employed. Six justifications for increasing my clients rate; -each one of which could have raised the rate ranging from .125% to 2%!
- In Canada, it is normal to ‘haggle’ a little bit over the rate that is posted by a lender, right? In the US, the market controls all: -and the market here for Canadians to turn to is shrinking. US Banks don’t want to lend, especially to foreign nationals: Canadians included. Where does that leave you? Those remaining options will center on what we call ‘pocket’ or portfolio lenders, who originate and hold the loans they originate within their own portfolios. TD Commerce Bank and BMO M&I are 2 examples. R.B.C. incurred such losses as a result of its foray into the US Retail banking market that they have recently sold their entire US retail banking division. Thus in ignominy, RBC retreats back to the north. Some community banks may be lending on a limited basis to foreign nationals, but the last one I heard of required a 45% down payment!
- Whom does that leave, you may be asking? Well an interesting side effect of the US credit collapse is the banding together of some foreign national citizens to form their own US lending groups. Canadians lending to Canadians, Germans lending to Germans and so forth. Ask your Realtor® if they know of one in your particular area of interest. Your best chance for financing may yet come from your own citizens!
- Time Frames: In Canada, you are accustom to 7 - 15 business days as the norm for a home purchase transaction. In the US right now; unless you are paying with cash (-and even then…?), it can take the US arm of a Canadian bank up to 15 weeks to underwrite your loan. So it was, according to another Client of mine who was trying to deal with RBC in FL this past February. So be prepared to wait, because the US TD’s and M&I/BMO’s have no problem letting you wait! They are understaffed and often over-whelmed by their own foreclosure activities going on. Again remember, the US government is ordering them to increase their reserves.
- Contraction in lending risk has also been reflected in the down payments and supporting documents that lenders are requiring. Generally you should expect a down payment of 30% in most cases; however, it can be as high as 45%.
o The down payments (in toto) must be brought to the US and left in a domestic bank for 30 days. This rule has become more stringently enforced than ever!
o This alone means that a Canadian looking to buy US real estate must move their down payment funds plus closing costs to the US a full 30+ days before even going under contract. A typical contract period is 30 days; thus, for a Canadian they would be looking at a time to purchase period: -at best of 60 or more days, depending on the speed of their Lenders loan underwriting!
o Closing Agents (a.k.a.: Title Attorney or Agent) and
o Property Inspectors, or,
o Surveyors.
Admittedly all of them bring distinctly different professional skills into the transaction on your behalf. But with increased regulation comes increased costs and many times those costs are passed directly onto you the consumer. Interestingly enough, the only one whose fees haven’t increased are the Realtors! –Go figure. . .
So in summary, let me restate the obvious: US arms of Canadian based banks, are still US Banks! They are under US Government pressure to increase capital reserves; and at the same time are squeezing where ever they can for that last bit of additional revenue. They aren’t lending to qualified US borrowers right now, why would they be inclined to lend to the increased risk carrying foreign national? Increased risk to these US subsidiaries justifies increased rates and down payments. Additionally, consider that because of the ever increasing amount of reserves for existing foreclosure activity; these banks are even more desperate to squeeze every last bit of revenue from whatever the source may be: including your vacation home purchase loan! Finally is time, the one item we all feel is in short supply as we go about our daily lives. Time for you to buy a house in FL? –Well for the best success, with a minimum of Time: I suggest you just bring cash!
For Now. . .New options are presenting themselves day-by-day.
About Jack Sandelman:
Jack is a veteran of the Finance and Lending world with almost 20 years experience! Experience counted on by many members of the mass media who have requested Jacks insights and commentary. They include domestic appearances on television appearing 5 times on camera as a Real Estate & Finance expert for Tampa Bay Florida Fox Affiliate WTVT – 13 News, and in print media including the Sarasota Herald Tribune, Sarasota Realtor Magazine and The Maddux Business Report. Internationally Mr. Sandelman has appeared on CBC Radio One, The Point with Amir Halim; and has been featured in the Toronto Sun, and The Globe and Mail. He is also a noted speaker at trans-border real estate exhibitions and symposiums.
Mr. Sandelman is pleased to assist you in understanding the difference of this process here in the United States. If you review these topics, they will assist you in having a positive client experience and you will also understand that in the United States, mortgage professionals are trusted advisors. His ability to advise his customers in this manner provides him a better opportunity to ensure a smoother transaction on their behalf.
